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Bankruptcy Means Test

Bankruptcy Means Test Information From Our Southern California Lawyer

Experienced Los Angeles Bankruptcy Attorney

In 2005, Congress made sweeping changes to the United States Bankruptcy Code, the most significant of which was the requirement that debtors whose debts are primarily consumer debts demonstrate an inability to repay unsecured creditors at least in part. Form B22, often referred to as the "means test," must be filed along with the bankruptcy petition, schedules, statement of financial affairs, and various other forms.

The Bankruptcy Means Test

The bankruptcy means test compares the debtor's household's income to the median level of income for a family of identical size living within the same region. If the debtor's household's income is below median income, the debtor is eligible for Chapter 7 relief. If the debtor's household's income is above median, the debtor's expenses are examined to determine whether the debtor has sufficient surplus income with which to repay unsecured creditors, at least in part. Not all of the debtor's monthly expenses are necessarily allowable expenses for means test purposes.

When the bankruptcy laws were first amended to incorporate the Form B22 means test, many people, including many professionals within the bankruptcy community, feared that it was very draconian and would prevent most debtors from seeking and obtaining bankruptcy relief. In fact, only a small percentage of those people that would have qualified for Chapter 7 relief prior to the 2005 law change would be denied such relief today. Even debtors with substantial incomes can usually qualify for Chapter 7 relief if they have substantial "means test deductible expenses," such as:

  • Taxes
  • Mortgage payments
  • Car payments
  • Term life insurance
  • Health insurance
  • Out of pocket medical expenses
  • Charitable donations
  • Childcare
  • Child support

At the Law Offices Of Hagen & Hagen, a bankruptcy lawyer will explain how the Form B22 means test works and determine whether it is likely to constitute an issue in your would-be bankruptcy. We will thoroughly review your financial situation and help you maneuver through the system so you can get the debt relief you need.

Timing Is Critical

Since the Form B22 means test looks back at the debtor's household's income over the preceding six month period, the timing of the filing can often be critical. For example, if the debtor receives a sizeable bonus in December that inflates income to the point the debtor's Form B22 means test reflects surplus income, the debtor may be wise to wait until July to file bankruptcy, at which time the December bonus drops out of the six-month lookback.

Say you own a house, have decided to walk away from it and let the mortgage company foreclose, but still have sufficient other debt that you wish to discharge in bankruptcy. Do you file bankruptcy before the foreclosure or after the foreclosure?

Mortgage payments are a legitimate "means test deductible" expense, whether payments are being made or not. One's rent expense is based on an Internal Revenue Service-approved chart of household expenses. If your income is higher than the median level of income for a household of identical size, the mortgage expense may be a critical component to passing the Form B22 means test.

Timing is therefore often of critical importance. Schedule as early in the process as possible a no-charge in-person or by-phone initial consultation to discuss your bankruptcy options in general and how you can successfully pass the Form B22 means test in particular.

Contact A Bankruptcy Attorney Today

For more information about the bankruptcy means test, please contact the Law Offices Of Hagen & Hagen today to arrange your no-charge initial consultation with a Southern California bankruptcy lawyer.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.